The Value of Habitat The Value of Habitat Conservation for Conservation for BioprospectingBioprospecting

Sean B. CashSean B. CashAssistant Professor, Dept. of Rural EconomyAssistant Professor, Dept. of Rural Economy

University of AlbertaUniversity of AlbertaFourth BioEcon Workshop on the Economics of Fourth BioEcon Workshop on the Economics of

Biodiversity ConservationBiodiversity ConservationVenice, August 28 – 29, 2003Venice, August 28 – 29, 2003

Why Higher Plants are Valuable Why Higher Plants are Valuable to Pharmaceutical Companiesto Pharmaceutical Companies

• Up to 1/4 of all drugs derived from plants

• Taxol was derived from the Pacific yew

• Cortisone and the first oral contraceptives derived from Central American yams

• Aspirin derived from a substance found in willow trees

• Merck/InBio agreement in Costa Rica

Rents to Pharmaceutical Rents to Pharmaceutical DevelopmentDevelopment

Previous WorkPrevious Work

• Farnsworth and Soejarto (1985) $1.5 million per year for each extinct species

• Principe (1989) $300,000 per species

• Simpson, Sedjo and Reid (1996) $9,400 as an upper bound for the marginal species; almost no incentive to conserve land

• Rausser and Small (2000) Value of a research lead

SSR ModelSSR Model

• Value of the marginal, not average, species drives conservation incentives

• Value is negligible for low or high probability of discovery

• Expected value of an additional species is

( ) ( )(1 )nv n pR c pr

SSR ModelSSR Model

• If testing for a particular use ends with the first success, the value of a collection of n species is

• The expected value of an additional species for any given use is therefore

( ) (1 )( ) (1 ) ( )

1 (1 )

n

n

V n pR c p pR c p pR CpR c pp

( 1) ( ) ( )(1 )nV n V n pR c p

Expected Value of the Marginal Expected Value of the Marginal Species as a Function of Species as a Function of p p (SSR)(SSR)

Incorporating Spatial CorrelationIncorporating Spatial Correlation

• Let Ij=1 if species j is beneficial; otherwise Ij=0, i.e., p = prob(Ij=1)

• Assume Corr(Ij, Ik) = f(djk)

• Simple case: Corr(Ij, Ik) = if Ij, Ik are in same region, Corr(Ij, Ik) = 0 otherwise

• prob(Ij=1|Ik=1) is then 1 - p) + p

• Replace p with this conditional probability when a hit is observed

Value of the Marginal HectareValue of the Marginal Hectare

• Area-species curve predicts ni(A) = i AZ, where i is species richness in i and Z

• Can predict the loss of endemic species from a one-hectare loss of habitat

• Combined with v(n) and conditional probability pi, value of marginal hectare if a hit is previously observed is

1 2( )(1 ) (1 ) ( ( 1) )n n Z Zi i i i i ip R c p p e A A

r

Results (1)Results (1)Forest Area No. of EndemicSimpson et WTP given a

Biodiversity ``Hot Spot'' (1,000 ha) Plant Species al. WTP hit, rho=.001Western Ecuador 250 2188 $20.63 $580.12Southwestern Sri Lanka 70 500 $16.84 $2,562.27New Caledonia 150 790 $12.43 $1,413.56Madagascar 1,000 2911 $6.86 $93.58Western Ghats of India 800 1620 $4.77 $236.88Philippines 800 1582 $4.66 $240.30Atlantic Coast of Brazil 2,000 3750 $4.42 $26.04Uplands of Western Amazonia 3,500 3846 $2.59 $13.86Tanzania 600 528 $2.07 $306.95Cape Floristic Province of South Africa 8,900 6278 $1.66 $0.78Peninsular Malaysia 2,600 1624 $1.47 $72.78Southwestern Australia 5,470 2831 $1.22 $18.02Ivory Coast 400 194 $1.14 $236.20Northern Borneo 6,400 2674 $0.99 $17.03Eastern Himalayas 5,300 2205 $0.98 $27.10Colombian Choco 7,200 2303 $0.75 $18.89Central Chile 4,600 1450 $0.74 $43.71California Floristic Province 24,600 2136 $0.20 $6.06

Incorporating Expected Loss of Incorporating Expected Loss of HabitatHabitat

• If genetic resources are secure, commercial value of conservation is zero

• Value of preservation higher in an area where habitat loss is progressing quickly

• The number of useful species we expect to have tomorrow is number today minus habitat loss, other extinction, and species ruled out by research

Incorporating Expected Loss of Incorporating Expected Loss of HabitatHabitat

• Assuming that dit is realization of habitat loss in hotspot i in period t, per-hectare value of preventing deforestation is

• where the expected number of useful species surviving the current period is

( )(1 ) ( [ ] 1) ( [ ])tn Z Zi i i it it it itp R c p e A E d A E d

r

11

( ( [ ])q

Z Zt t i i it it it t t

i

n n e A A E d U X

Results (2)Results (2)WTP Given Expected WTP for the

Biodiversity ``Hot Spot'' 2% Habitat Loss Last Hectare(rho = 0.001) (rho=0)

Western Ecuador $673 $1,479,947Southwestern Sri Lanka $2,947 $465,027New Caledonia $1,628 $607,524Madagascar $109 $1,392,597Western Ghats of India $274 $819,456Philippines $278 $800,133Atlantic Coast of Brazil $30 $1,508,540Uplands of Western Amazonia $16 $1,345,077Tanzania $353 $286,998Cape Floristic Province of South Africa $1 $1,738,829Peninsular Malaysia $84 $611,717Southwestern Australia $21 $885,702Ivory Coast $271 $116,640Northern Borneo $20 $804,217Eastern Himalayas $31 $695,363Colombian Choco $22 $672,580Central Chile $51 $473,654California Floristic Province $7 $458,829

Results (2)Results (2)

WTP Given Expected WTP for theBiodiversity ``Hot Spot'' 2% Habitat Loss Last Hectare

(rho = 0.001) (rho=0)Western Ecuador $673 $1,479,947Southwestern Sri Lanka $2,947 $465,027New Caledonia $1,628 $607,524Madagascar $109 $1,392,597Western Ghats of India $274 $819,456Philippines $278 $800,133

ConclusionsConclusions

• Calculations reported here are not definitive estimates, just possible scenarios

• Potential role of spatial correlation and expectation of future habitat loss significant

• Results of Simpson et al. sensitive to these considerations

• Can mean difference between success and failure of market-based conservation

Other ConsiderationsOther Considerations

• Perfect substitution of plant compounds for a given use assumed here (and elsewhere)

• Competition between firms has not been considered

• Interesting interplay between the two: better products can replace established ones

• Role of ex situ conservation techniques